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Coping with crisis the British way

24 February, 00:00
Reuters photo

LONDON 6STOCK EXCHANGE’S CEO XAVIER ROLET PONDERING THE MOTTO DICTUM MEUM PACTUM (MY WORD IS MY BOND)

In time of crisis the whole world lives in an atmosphere of uncertainty about the immediate future. People do not trust banks, unemployment rate soars, national currencies continue to devaluate, and other problems keep piling up as a result of all this. Most such problems instantly gripped most countries. International experts believe that these countries should join efforts to overcome them. Nevertheless, the way this crisis is coped with differs in different countries. Great Britain is among the countries worst hit by the economic crisis. British Finance Minister Alistair Darling says the markets cannot solve this problem single-handedly and that the government must step in; people who have elected the government expect it to come to their rescue, and this is precisely what this government is doing.

London remains the world’s largest financial center and this status has led to negative consequences. As the international financial system crashed, London found itself sustaining greater damage than New York. The sterling has lost one-third of its value over the past year causing one of the most unpleasant consequences—a continuous price increase.

As always, the British middle class has suffered the worst, particularly those who wanted to raise their social statues and bought homes on credit without being one hundred percent sure about the stability of their incomes. Thousands of Britons are either becoming unable to pay on their bank loans or falling prey to their bankrupt banks. It is also true, however, that the British government is aiding people in the latter case by guaranteeing a refund, ?50,000 per capita. This option has saved the Northern Rock bank’s depositors. Also, no British banks have recently collapsed as the finance ministry has been spending taxpayer money to purchase shares in large British banks. In this way banks, which normally rely on world financial markets, are now receiving tangible additional assets.

TAX REFORM

Great Britain is trying to overcome the crisis by reforming the taxation system. In other words, the rich will be made to pay more and the poor will be granted tax concessions. Britain’s VAT is now fixed at 17.5 percent. It is expected to be cut to 15 percent for the duration of the crisis, in which case the British will be able to buy more goods and perhaps reinvigorate the domestic economy. At the same time, the wealthier strata are in for bad news. Analysts expect the British finance ministry to raise their income tax to 45 percent—this will apply to everyone who earns over ?150,000 a year.

Heads of businesses in the financial sector, on which the British economy relies to the greatest extent, periodically hold talks on various solutions to the crisis, including the creation of a state-run bank for problem assets. They propose the government should buy assets that have depreciated as a result of the credit crisis, so they can resume crediting.

The press is known as the fourth estate. Some British journalists are also trying to find ways out of the crisis. As a rule, British newspapers do not quote from the Bible, but on Dec. 19, 2008, The Financial Times carried Niall Ferguson’s article on the jubilee year that read: “In the Old Testament Book of Leviticus, God commands the children of Israel to observe a jubilee every 50 years… But the biblical conception of a jubilee was more precise: that of a general cancellation of debts.” To overcome the crisis, Ferguson proposes a “generalized debt cancellation” to allow the economy to start a new life. This idea seems utopian, although there are historical precedents. For example, in 1923 hyperinflation resulted in the total collapse of the national currency in Germany, thus automatically canceling all debts on paper.

JOBS IN THE ANTARCTIC AND MORE MARRIAGES

The British employment and recruitment services offer their solution to the crisis problem for certain groups of the population. There are vacancies at five British Antarctic stations. The South Pole, for instance, badly needs cooks, mechanics, electricians, and personnel managers. Here the biggest advantage is that there is practically no way you can spend the money and thus, every opportunity to stay economic.

A positive aspect about the crisis in the UK is an unprecedented increase in the number of marriages in 2009. Church and secular authorities stress that it has been a long time since a marriage boom of such scope was last registered, particularly among the British population. Experts attribute the registered marriage increment to people feeling insecure in time of crisis and seeking stability. When there is economic growth, everyone becomes economically independent and, accordingly, more self-centered. This, in turn, means that people are in no hurry to get married.

To learn more about the situation in Great Britain, The Day spoke with Christopher ROSEVEAR, a British businessman who has first-hand experience of the economic crisis. Besides, he is a macro-economic consultant.

Rosevear: “Over the last six months, health problems have been more important for me than economic crises (Mr. Rosevear recently had a cardiac surgery—N.K), but that is only because I can afford to disregard the economic situation. I am probably not typical of most people living in England—I am somewhat isolated against the effects of the crisis since much of my income comes from investments denominated in euros, and my income from World Bank is hedged against currency issues. Over and above that, I am relatively well off, unlike the newly redundant worker. However, I am typical of a particular set of upper echelon professionals in England—most of us have cushions against the crisis.

“Nevertheless, I am conscious of paper losses on investments—the value of my investments has fallen substantially over the last year—and eventually these paper losses will affect my monthly income. I am now withdrawing more than the investments are earning each month; that cannot go on forever.”

You mean you have become more economic?

“The crisis is making me meaner. I am not sending as much currency to my friends abroad who need supporting. Generally I am being more careful how I spend my money; a trip to the supermarket definitely looks at “best deals” more than it used to. I tend to invite friends round to eat with me at home, not in restaurants.

“I like to and need to travel within Europe. Europe appears increasingly expensive, to the point of being ridiculous. I resent spending €100 on a simple fish meal at a fishing port, for two people sharing a half liter of cheap local wine. So I am tightening my belt and not spending as much on “passing” pleasures. I would like, but do not need, a new car—so that can wait too… However, investment in long-term projects, like musical instruments and house repairs, are not being reduced.”

Are you traveling less now?

“For personal budgets, European travel is now becoming very expensive—but for winter sports, we do not have any choice! We now have snow in England, but no mountains!”

How hard is the crisis on the British labor?

“There is a curious phenomenon amongst the self-employed. People talk about lack of work; yet if you try and find a plumber, a carpenter, a plasterer, they still suck their teeth and wonder whether they will be able to fit you in before 2010—and of course their prices have gone up, not come down.”

What is the effect of the pound sterling on the crisis in Britain?

“The present crisis is clearly US based—so euro/sterling movements are a result, not a cause. Now we are suffering—we have the inconvenience and expense of a different currency, and we do not appear to be gaining exports from the manufacturing sector. Of course we are also paying more for imports.”

Will Britain switch to the euro?

“The British will always be unwilling to give up sterling, the British pound—it has played too much of a sentimental and political role in our lives for too many centuries—nearly 1000 years. The main technical reason England did not go into the Euro zone was because the rather profligate policies of the French and Italians would have caused us problems, particularly if we had gone in at the then prevailing exchange rate (very unfavorable to our exports)… Eventually I expect we will accept the Euro here too—but there are a lot of traditionalists to persuade first.”

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